On Regulating Transportation Emission via Personal and Corporate Carbon Trading: A Game-Theoretic Approach

Abstract

<p>This study explores the impact of emission trading systems (ETSs) with personal carbon trading schemes on the urban transportation system. ETSs allow companies/organizations to buy and sell carbon credits to offset their emissions. Countries like Canada have adopted pilot ETSs in the transportation sector, either through an upstream regime regulating fuel distributors or a downstream regime regulating end emitters such as travelers. However, the impact of introducing ETSs with personal carbon trading on mobility patterns, transportation service operators’ operation strategies, and overall system performance remains unclear.</p><p>This study proposes an analytically tractable framework to examine the transportation-incorporated ETS. Under this ETS, we model two carbon credit trading markets: Personal Trading Market (PTM) and Corporate Trading Market (CTM). In the PTM, travelers from three groups (PV owners, EV owners, and vehicle-less travelers) trade carbon credits initially allocated by the government. PV and EV owners can choose between driving and using public transit, while vehicle-less travelers only take public transit operated by one transit operator. PV/EV travelers must offset their associated emissions through carbon credits, while taking public transit requires zero credits. The CTM enables companies to trade their carbon credits allocated by the government. We specifically examine the strategies of the transit operator in the CTM. The transit operator's carbon emissions arise from the operation of transit fleets and must be offset by the transit operator's credits.</p><p>We formulate a Stackelberg game to examine the strategic interactions among the government, transit operator, and travellers under the ETS. The government leads by determining the credit allocation strategy to minimize the total system travel cost while ensuring that the total allocated carbon credits meet emission goals. Then, the profit-driven transit operator receives credits and optimizes transit fare and transit frequency in compliance with the emission trading scheme. Following that, travelers make mode choice decisions subject to the personal trading market equilibrium.</p><p>We analytically and numerically compare the optimal operation decisions, equilibrium mode choice patterns, total system emissions, and total system travel cost under the Stackelberg equilibrium with those under the status quo without the ETS. Our results indicate that when ETS is introduced, the total transportation system travel cost increases as more travelers shift to the transit mode, but the overall system-wise emissions are reduced. Moreover, vehicle-less travelers receive the largest number of initial credits, followed by EV owners and PV owners, indicating stricter restrictions on travelers with higher emissions.</p>